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Digital Music Forum: The Suits Talk DRM

I'm attending the Digital Music Forum today and tomorrow at the Jewish Heritage Museum in New York City, and it's off to a roaring start. I walk in, fire up my laptop, and the first question for the music industry panel is: "What do you think about Steve Jobs' anti-DRM argument?"

"He was absolutely wrong!"

And off we go.

The panel's topic of discussiong was "The State of the Digital Union," and revolved around DRM, licensing, ring tone sales and all the fun stuff that we typically make fun of record labels for.

The panel members were Sony BMG Senior Vice President Thomas Gewecke; RealNetworks Europe General Manager Gabriel Levy; Greg Scholl, CEO of The Orchard; Music Choice CEO David Del Beccaro; Ruckus Network CEO Mike Bebel, and GoFish CEO Michael Downing. For simplicity's sake, I'll just refer to the panelists by their affiliation.

The real issue at stake is whether DRM is going away, needs to be improved, or, as some argued, is fine the way it is. But the general consensus from all but one panel member is that Steve Jobs was just blowing smoke by talking anti-DRM. After all, Disney/Pixar don't distribute their content without DRM. "What if they did?" the moderator asks. "Everyone would short their stock," comes the reply.

There was no more discussion on that point. But is it true? Will the first DRM-free service be a "buy" or a "sell"? And if it is a sell, is that just a knee-jerk reaction from investors who don't know better, or will the first label that tries ditching DRM really be less profitable as a result? This is a crucial question...maybe THE crucial question. Sound off in the comments.

Anyway, Ruckus set the tone with his opening rebuttal to Steve Jobs, who "was absolutely wrong. The creators of DRM envision ubiquity and interoperability. It's interoperability that's the issue--DRM is fine, it works fine."

There's assent (almost) all around, as the various panelists agree that DRM is necessary. Sony BMG's Thomas Gewecke chimed in with: "We already DO support interoperability. This is a technology problem with a technology solution. DRM is about letting people do things."

Reeeaaally? What does a DRMed WMA let you do that an MP3 doesn't? The lone dissenter on the panel finally calls BS: It's The Orchard's Greg Scholl. "The idea that DRM gives us choice isn't right. DRM doesn't work."

That gets the chorus going, of course. But Scholl continues with his indie-vibe: "The economics of the business are never gonna be the way they were before. It's over."

The conversation then drifts over to the viability of ad-supported free music. Ruckus says his business is doing very well by opening up to college students. "These kids are used to getting music for free, and it's still free, we just wrap advertising around it."

He continues by talking about user feedback: "They accept the advertising, and appreciate the fact that they have a high-quality service that's legit."

The main problem with ad-supported listening is invasive ads. "You can't interrupt the listening experience with advertising. You can't force advertising down the throats of the listener. We contextually wrap advertising around the experience of music discovery and music consumption and it works."

Music Choice agrees, saying their ad-supported business is "very successful." He continues later with "The consumer is willing to put up with advertising, but there's a limit."

Next question: Why haven't subscription models caught on? Everyone on the panel at some point says that Rhapsody is a great service, so why aren't consumers going for it? [One word: iPod. And yet no one says it.]

"Rhapsody has the TiVo problem," says RealNetworks. "People need to use it to realize how cool a subscription model really is." He goes on to say that PlaysForSure didn't prove to be what Real hoped it to be, but they're really proud of the new Rhapsody DRM scheme, which lets the Rhapsody experience become portable.

Would an Apple subscription model make the idea more palatable? [um, yeah. One word: iPod] Music Choice says no way. Apple wouldn't be successful with subscriptions because there aren't enough people interested in subscribing to things in general. If I understand his argument right, that's what he was saying, but his comments are met with a lot of disagreement on the panel. And for good reason--what about the ideas behind Netflix, TiVo, and cable TV?

The next topic of discussion is variable pricing. Should consumers be paying the same amount for a recent hit as for a backcatalog album track?

Music Choice speaks first, saying fixed, 99-cent pricing is turning the industry upside down. There are tracks that could fetch more than 99 cents, but retailers can't charge more. Apple's 99 cent price is "ruining this business."

Music Choice speaks out again later when Real says DRM-free music "will happen, it's a question of when. We would welcome an environment where the majors make that decision to move forward."

Music Choice: "I don't think that should happen. The DRM rules should be liberalized, but the content needs to be protected. [Going DRM-free] would be a bad decision for the music industry.

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